Technology and Payments

Transcription

1 Technology and Payments - A Look Behind the Hype kpmg.ca As published in Payments Business January/February edition

2 Key theme Technology and Payments A Look Behind the Hype The winning combination By Karen Treml The payments sector is an industry of rapid change, continual evolution, and bleeding edge advances. Financial services and payment companies continue to make major investments and launch innovative initiatives while jostling for leadership in a dynamic and diverse market. In a recent roundtable hosted by KPMG, and facilitated by Payments Business magazine, some key industry leaders came together to discuss what is driving the change, the current developments that hold promise, and where the true value lies and how can it be best extracted. Drivers of change For the past several years, there has been considerable innovation and advancement within the payments space, particularly in such areas as digitization and technology. During this time we have also seen many changes in the expectations and demands of both the merchant and the consumer. But, what exactly is driving the change? Is it the innovation and advancement that drives the industry, merchant and consumer demand in and of itself, or both? For David Bolton FCMC, Partner, Advisory Services at KPMG, it is both. He feels it is the convergence between digitization and the evolution of technology and the evolving consumer demand and expectations that drives the industry. Georges Pigeon, Partner, Advisory Services at KPMG agrees and says that for a period of time, the payment industry was comfortable; credit 18 PAYMENTSBUSINESS

3 Key theme Photos Gary Tannyan Clockwise left to right: Georges Pigeon, Paul Gordon, Jeppe Dorff, Tom Pawelkiewicz, Karen Treml, Jeremy Bornstein, Mark Ripplinger and David Bolton. cards and direct debits were being processed, approved, and settled. Eventually though, merchants wanted their cash more quickly and customers wanted an easier way to settle transactions. So, whether people are taking public transport or going to a restaurant, they are having to carry tickets, cash, credit cards, tokens, etc., and finding a way to combine everything, thereby really making it easier for people, is a big driver. But, says Pigeon, change must also consider the needs of the merchants it can t be imposed just for the sake of change. You have to get the buy-in from both sides of the transaction. On the other hand, Jeppe Dorff, VP of Transaction Services at Rogers Communications does not see any strong consumer demand for change and he doesn t think consumers have any inherent need for innovation or technology. In fact, he says, the payments industry has self-imposed an assumed demand as a result of the technology convergence and digitization. This seems to harken back to the sentiment within the industry that current technology solves a problem that from the consumer s perspective doesn t actually exist. Mark Ripplinger, President & CEO of Everlink Payment Services Inc. agrees that technology is a key driver, however, he says it is in fact possible for this technology push to actually create consumer demand where it doesn t otherwise exist. It is true, he agrees, consumers are not arbitrarily looking for change, but nevertheless, when emerging technology becomes available, they are interested and go through a process of acceptance of the concept, following by adoption. Acceptance is not the determiner so much as is adoption. The key lies in finding the drivers for consumer adoption and for ubiquity. So, when we look at adoption as being key, what is it that affects and influences that adoption? Tom Pawelkiewicz, Director of Emerging Payments at Scotiabank, says adoption is influenced by the bigger consideration. It is not so much about digitization or technology, and it lies much less in delivering the payment experience and more in delivering the ultimate in shopping experience. While the focus is arguably on providing ease of payment, Pawelkiewicz says the true avenue to consumer acceptance and adoption lies in delivering an easier, more convenient shopping experience delivering the right offer to the consumer, helping them to find the right item, and then providing an easy payment option. Adding loyalty and an electronic receipt adds cachet to that positive shopping experience. The mobile payments space Whether the drivers are digitization and technology or merchant and consumer PAYMENTSBUSINESS 19

4 Roundtable demand or both certainly the last several years have seen a strong focus on innovation and technology in the mobile payments space. Much of the attention and discussion has surrounded issues such as nearfield communication (NFC), the cloud, security, etc., and predications that the adoption of mobile is just two years away. And then just another two years. And another. So, in the interim, can we say that the mobile payments space really advanced? Paul Gordon, Senior Manager of Payments at Credit Union Central of Canada thinks it has. He points out that a couple of years ago many people were questioning the value proposition of mobile and the rationale for spending the kind of money that was required to bring it to market. Now, even in the last few months, the technology has changed. Host card emulation (HCE), he points out, has certainly changed the value proposition in terms of how one brings a mobile payment solution to market. He notes there is work to be done with the consumer in terms of explaining the value proposition beyond just the payment aspect. The bigger question, he says, is really that of what would have the consumer make a conscious decision to use their phone instead of their card and he s not sure that question has yet been answered for the consumer. Agreeing that even a year ago mobile payments was still in its infancy, Pawelkiewicz says that the infant has now grown into a toddler that is learning very quickly. A lot of technology has come to market, like HCE, biometric authentication, and different form factors, and he thinks the big year in payments really is two years away. I know we said that two years ago and four years ago, and nothing came of it, but I think we are at a point where the critical mass is finally being reached the ecosystem is ready and two years from now, we ll see a huge movement in the state of mobile payments. Questions do remain, such as how to get other participants to add more value through, We are at a point where the critical mass is finally being reached the ecosystem is ready and two years from now, we ll see a huge movement in the state of mobile payments. for example, targeted offers, card-linked loyalty, etc., but also on how to really collaborate to move mobile forward. To get rid of the wallet that we re all carrying, we need to figure how, for example, we can put a Scotia card into the RBC wallet, how we can get all of our loyalty cards into that single wallet, and how can we make highvalue transactions? How can we put a PRESTO pass, a TTC pass, and our ID into that mobile wallet? Because until those things come into play, which is possible only through collaboration amongst the participants, we will remain in that barely-crawling, barelywalking stage. But, for Jeremy Bornstein, Head of Payments Innovation at RBC, little has changed in two years and the industry, in his opinion, is perhaps only a little bit further ahead. He agrees it is more exciting now with HCE and Apple Pay, but the more interesting aspect for Bornstein currently is the support for contactless payment at the point of sale and the confidence within the industry that this is actually the platform to move forward with. Knowing that NFC is the platform of choice allows us to build on it with confidence. In a country like Canada, with 70 per cent penetration of smartphones and 30 per cent penetration of contactless terminals, this is the time to get this technology to roll. When looking at the changes from four years ago, two years ago, and currently, in essence the mobile space Participants David Bolton FCMC, Partner, Advisory Services at KPMG Georges Pigeon, Partner, Advisory Services at KPMG Jeppe Dorff, VP of Transaction Services at Rogers Communications Mark Ripplinger, President & CEO of Everlink Payment Services Inc. Tom Pawelkiewicz, Director of Emerging Payments at Scotiabank Paul Gordon, Senior Manager of Payments at Credit Union Central of Canada Jeremy Bornstein, Head of Payments Innovation at RBC 20 PAYMENTSBUSINESS

5 RoundTable today is little more than a form factor that replicates card-based payments. And, as mobile payment starts to emerge further and further, Ripplinger questions where the value proposition lies. While there is certainly some value in the convenience that results from the convergence of all the other elements of the payments ecosystem into one bundle, he doesn t think mobile payment has gained ubiquity. Plastic still wins the day, he says, and for now plastic and mobile will simply coexist. And, undoubtedly, at least in the foreseeable future, that is so. Still, form factors offer choice. As Bornstein points out, a lot of programs today are governed by giving consumers a choice. There is also the matter of balancing convenience with security. It s really about figuring out the right options that add that additional convenience. Some consumers only want to carry their phone and therefore, putting that convenient factor of payment on the phone is of interest. But it s not game changing, and cards will stay around, he says. Clearly, within the mobile space, we are not there yet. But, when we look to whether the industry has in fact advanced, given that HCE has changed how mobile payment solutions are brought to market and the ecosystem seems better aligned, despite the fact that much work needs to be done in illustrating the value proposition, there is a strong sense that the next two years will be the game changing period. Innovations While the value proposition continues to be defined, technological innovation will continue to advance. The layering of tokenization onto HCE is probably the most recent innovation that is likely to have the biggest impact. From the perspective of the credit union, in terms of delivering a mobile payment solution into market, the intention is to base it on host card emulation and tokenization, versus the NFC SIM model, says Gordon. He adds that with respect to the innovations of Apple Pay, what the solution brings to the payment transaction in terms of setting up the mobile payment, is really around the user experience. That s something that Apple has perfected over the years. Apple s technology and its fingerprint scanning biometrics is what the company s true value proposition is. Really, Apple has inserted itself into the existing payment rails. In terms of innovation, I m not sure it s really all that innovative. But, the fact that it s been able to bring a user experience that s going to resonate with people with their iphones, that will help to drive adoption. Offering another perspective, Bolton says that Apple has in fact done what they are really good at creating a lot of media attention and creating a lot of buzz around a topic. Apple has proven that it influences consumer trend. It does not drive it, but it does have a way of getting in front, or at least in front enough, to help influence direction. In that regard, says Bolton, the level of attention to Apple will in and of itself drive activity. Like most things, there s often not one item that you can say is really innovative or has really caused a major change. It is typically more the culmination of a number of smaller improvements or changes across a variety of elements. Innovation here is from all of the pieces, all the building blocks being in place. It lies in all the pieces moving at pace, staying connected, and going forward in a somewhat reasonable fashion to support consumer demand when consumer demand increases. One very big area of innovation within the mobile space is that of payment apps. There are currently more than 2,500 and as Bornstein points out, clients can t possibly manage or handle that many apps nor are they going to try. Financial institutions are making it as easy as possible for their clients to choose their specific payment product. According to Bornstein, the major David Bolton Georges Pigeon, left. Paul Gordon, right. Jeremy Bornstein, left. Mark Ripplinger, right. PAYMENTSBUSINESS 21

6 Roundtable payment schemes will endure, not because of the value proposition for consumers, but because of the ubiquity of acceptance, which he points out is the number one factor. Dorff agrees. If we just look at the ecosystem, we ve certainly added to the complexity in Canada because everybody is actually collaborating. So, we can have Google Wallet, a Scotia banking app, a payments dual-purpose app, an RBC dual-purpose app, or a CIBC standalone payment app it is very diverse and we ve actually added to the complexity because we believe in an open ecosystem where consumers have the choice to pick what they want. As more and more apps eventually come to market, it will be increasingly complex for consumers. And undoubtedly that complexity will grow, says Pigeon, who points out there is another aspect of that complexity to consider. When we look at the various technologies and other Tom Pawelkiewicz solutions that are being introduced, he says we have to consider who is behind the solutions, their motivation, and their source of funding. In the end, only a few of them will survive. In some cases, it will not necessarily be the greatest, most convenient, or easiest to use. Instead, it could be the ones that have the most money backing them, enabling them to stay in the game long enough. And although any solution ultimately has to meet the touch points of being easy to use, ubiquitous, and secure, that doesn t guarantee the surviving ones will be the ones that score 10 out of 10 on all of those points. One must also consider whether the success of any app is driven by the voice of the consumer based on what it offers in user experience. It is likely that of those 2,500 payment apps, consumers will decide which ones they re going to use based on which ones provide the value proposition, says Gordon. Using the Starbucks app as an example, its success is owing to the fact that the consumer can use it not only to pay, but also to, among other things, track and redeem their loyalty points. While from a security perspective it is very unsecure, it offers great user experience and gives the customer what they need. It s reliable. It works. And so, it is popular. Ripplinger, on the other hand, says it will not be the consumer that makes the decision, but rather, it will be made based on meeting the five must-haves that a successful payment method requires. First and foremost, it has to be secure and private; second, it has to provide absolute payment finality, including being auditable and verifiable; third, it has to comply with payments rules and regulations, from legal, regulatory, and compliance perspectives; and finally must-haves four and five it has to be both convenient and ubiquitous. And, if a payment solution doesn t meet those five must-haves, ultimately and inevitably, it s going to be exposed. The small, closedloop solutions don t necessarily meet all of those criteria, and that s why they re going to stay closed-loop. Of those 2,500 apps, a very large percentage don t and won t meet the must-haves. Therefore, they will not prevail; they will not exist into the future. But in an era where user experience is all important, although technological innovation is a big part of uptake of any solution, it cannot be overlooked that greater success may well go to any solution that delivers to the entire shopping experience. The shopping experience is what will ultimately prove defining, says Pawelciewicz, who points to Big Data as being what will deliver that enhanced experience. In order for mobile payments or the ecosystem to build, and what in fact is driving some of the change, is the availability of Big Data. We have the ways now, if we do choose to collaborate, to make use of that data, to make that customer experience better. I would say that analyzing and applying big data is one of the major factors that will drive innovation forward. Through analyzing that data, ultimately the needs, desires, and habits of consumers can be better targeted, and the customer experience can in turn be more beneficially defined and delivered. The winning combination Indeed innovation continues to move forward, technology is ever evolving, and opinions are varied and diverse on what the ultimate answer is. Is there any innovation or solution currently available that offers enough of the value proposition to hold the greater promise? For Bolton, that answer is no. He says there is no one answer but in striving for it, the industry should keep the consumer first and foremost. Notwithstanding the complexity of the technology and process behind the scenes, he feels that keeping it simple for the consumer is the direction the industry needs to go. Inevitably, there will be a lot of consolidation, and there will be solutions that emerge industrial strength. Pawelciewicz agrees there is no one answer. I don t really think it is that important which of our wallets will emerge as victorious, because I don t think any particular one will. And, I wonder if it matters at all what any wallet is like. What matters to the consumer and to the banks is which card is being used, not which wallet it is in. The way that most customers will make that choice is through the card features themselves. And what is of primary importance for 22 PAYMENTSBUSINESS

7 Roundtable the banks is that their cards appear in those wallets and that they are top of wallet. Conversely, from another perspective, Bornstein says that while top of wallet is important, it is not the single primary concern. As an issuer, we care very deeply where our card is, and what wallet it s in. Security is incredibly important and from a security standpoint, it is not in the best interests of the consumer to have their credentials propagated into hundreds of different wallets. We care very much about the conversation that we re having with the consumer at checkout. We care very much about branding, and what that looks like. We want consumers to know exactly that they re earning four times the points in this environment, versus another. We want to be able to talk to them. And that dialogue with the customer is what Bolton says is important. Communicating and educating the consumer is a key element particularly because today and over the coming years, the consumer will be faced with a number of choices. As a result, the industry needs to collectively find ways to make sure that consumers are making informed choices and that they know where the risks are and where the risks aren t. In the end, it comes back to the earlier point of a relatively small number of solutions, because those established, trusted relationships will carry the day. Bolton points out that there is an obligation on the part of everyone to make sure that consumers are making the right choices. When looking at the value Georges Pigeon, left. Paul Gordon, center. Jeppe Dorff, right. proposition, there must also be consideration for the under-banked, the un-banked, says Pigeon. With all these technologies coming, how can they also be a part of things? There may be reluctance with certain players in the whole industry to tap into the underbanked, or the un-banked, and for different reasons. But, they are a real segment and the regulatory bodies will also want us to consider how we are dealing with them. It may have some very simple solutions but they have to address the five must-haves that Mark was mentioning. So, the solutions will probably be eights out of 10 across all five, but likely are the only ones that do that well and consider the consumer, the merchant, the financial institution, the government, and the consumer advocacy groups, who are looking out for the average consumer and the ones who are less privileged. And, they could be great solutions to the people who are less fortunate, and be ways to collect welfare or other types of government services that they benefit from or are entitled to, and making sure that they re not falling between the cracks. When looking at the payments space and all that it entails and offers, identifying and extracting the inherent value can be the biggest challenge to realizing it and delivering the winning combination. When you converge the multiple elements of a payments ecosystem into something that is convenient and ubiquitous, that is what provides real value to the end consumer, says Ripplinger, adding that the real magic is when a payments solution provides clear consumer value and you can see a line of sight to value for the merchant, and a line-of-sight to value for the issuer, to the financial institution. That s a win-win-win. We started with the question of what is driving the change within payments innovation and technology, merchant and consumer demand, or both and what will ultimately result in the winning combination. At the end of the day, there is a general consensus that a combination of factors drives the industry and therefore the winning combination will come down to the innovation and technology that delivers the overall value proposition the solution that offers the consumer more than just the ability to pay. Mobile commerce is certainly the broader picture and so from there it will be a matter of which solution(s) provides that wholesome mobile commerce experience for the consumer, the one that delivers the payment, the loyalty, the couponing, and the e-receipts. Bolton does not think that anyone is there yet, but says it is ultimately where we re probably meeting at. PAYMENTSBUSINESS 23

8 Contact us David Bolton Partner T: E: Georges Pigeon Partner T: E: The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.